Office Depot, OfficeMax Having Office Affair

CEOs of Office Depot and OfficeMax just gushed about each other as they announced their "merger of equals' on Wednesday.

Here's OfficeMax CEO Ravi Saligram: "I joined Fred Astaire dance school, and lo and behold, Neil and I have decided to Tango. .. Neil and I discovered .. that we both love Italian wines and Italy."

Here's Office Depot CEO Neil Austrian: "From the time we started talking, Ravi and I have grown very fond of each other. It's very clear we can work very well together. .. We really do share the same values, and the same vision."

Mr. Austrian bristled at online reports that he was taking over Mr. Saligram's company: "Let me make it perfectly clear: This is a merger of equals."

Beyond expressing mutual admiration and equality, Mr. Austrian and Mr. Saligram had little meaningful to say as they politely took turns discussing their deal in a conference call with investment analysts.

What's the combined company going to be called? They don't know. How many stores and employees will they cut to achieve their announced $400 million to $600 million in annual synergies? They don't know. Who is going to be the CEO of this incredible shrinking office supply chain? They don't know. Where's it going to be headquartered? They don't know that, either.

Office Depot is based in Boca Raton, Fla. OfficeMax is based in Naperville, Ill. If it's truly a merger of equals, maybe they'll meet in the middle, which would land them somewhere around Nashville, Tenn.

Maybe they'll brand it "Office Affair" and write a Country/Western tune about a love that won't last as they make all their grueling business decisions in an unforgiving economy.

The deal is expected to close before the year is through. In the meantime, these two big box retailers--once known in the retail world as "category killers"--will continue to vigorously compete with each other, their CEOs said. Yes, they'll still be at each other's couponing hides like love never happened--at least until they get shareholder and Federal Trade Commission approval.

I am glad this deal was announced because I have trouble remembering that Office Depot and OfficeMax are actually two separate companies. I can't count how many times I walked into an Office Depot thinking it was an OfficeMax or vice versa.

OfficeMax sounds like a big Office Depot. Office Depot sounds like a little OfficeMax. And some of their respective stores are so close together, the only thing I think a merger might entail is opening the folding-panel wall between them.

Office Depot and OfficeMax have been confusing each other's customers for years.

"We're almost in the identical business," Mr. Austrian said on the call. "We've got the same customers. We've got the same vendors, and we know each other very well."

So why did it take so long to come up with this deal? The most commonly reused analyst quote in the office supply business--going back even before the Great Recession--is, "this industry is ripe for consolidation."

Stocks of Office Depot and OfficeMax never fully recovered from the tumble they took after 2008. Their sales continue to shrink in the so-called recovery. And the two companies together still do not add up to one Staples Inc. (SPLS). Office Depot and OfficeMax had combined revenues of almost $18 billion last year versus $24 billion at Staples.

The biggest problem they face is that too many of their products are now available almost everywhere else. "All you had to do in 1997 is walk into Wal-Mart and they may have had 100 to 200 square-feet of office supplies, and today they have thousands of square feet office supplies," Mr. Austrian noted.

Then there's Amazon.com Inc. (AMZN), which will deliver office supplies any day to any doorstep.

The best thing Office Depot and OfficeMax can do in this environment is join hands and swing the hatchet, closing stores, slashing employees and keeping their costs lower than their declining revenues.

Mr. Austrian and Mr. Saligram, however, promise their merger will be "transformational." They say they'll marshal their people--even as they fire thousands of them--to cheerfully provide customers with expertise. Throughout their call, they repeatedly plied the cliche, "win-win."

Yeah, sure. Deals are never about the CEOs who put them together. And this really could be a "true merger of equals," even though there's never been any such thing in the past. Usually, someone gets the upper hand over time. And one of the few things we do know is that this deal is slated to close with Office Depot shareholders ending up with about 56% of the stock.

We'll see how long this love is in the air.

(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. The column is published each Tuesday and Thursday at 9 a.m. ET. Contact Al at al.lewis@dowjones.com or tellittoal.com)